Since thinking about—much less reading—your Living Trust is about as fun as thinking about and paying your taxes come April 15th, it should not be surprising that many of us leave our Living Trusts locked away for years at a time…along with our archived tax returns.
Despite what some would have you believe, most Trusts do not need to be updated every year. However, it is a good idea to review your own Trust every few years to be sure that it still meets your objectives. Once in a while, you should also consider speaking with your attorney about updates that are recommended.
Generally, the law governing Trusts is fairly stable. The most common reason to update your Trust is not a change in the law, but a change in your own personal situation. For example, a married couple with school-age children would probably ask an adult family member—often either spouse’s mom or dad—to serve as successor trustee (essentially an executor except for a Trust rather than a will). This makes sense. Obviously, minor children would not be in a position to ensure that their parents’ Trust assets would be managed appropriately.
Flash forward 15 years, and it may make sense to make a change. For one, the adult family member who was named as successor trustee 15 years ago (particularly a grandparent) may no longer be in a position to serve as successor trustee. And, the children themselves may now be responsible adults who can be trusted to act responsibly on their parents’ behalf. Or, the plan of distribution in the Trust may no longer make sense due to a death, divorce, or similar life event.
Less often, a change in the law can also leave an estate plan out of date. For example, as you probably know, Congress recently revised the federal
Death is for sure, maybe you can avoid death taxes!
estate tax to allow each person to pass up to $5.4 million free of estate tax, adjusted for inflation going forward. A married couple will probably not need to be concerned about the federal estate tax unless Congress changes the law again or your joint estate approaches $11 million or more in value.
The updated estate tax law also removed rules that (for all practical purposes) required half of the estate to be locked up in a “Bypass Trust” after the first spouse died in order to minimize estate taxes. Many joint Trusts set up under the old rules (i.e., before 2013) include terms requiring a Bypass Trust. These terms typically require the surviving spouse to divide the assets of the estate, fund the Bypass Trust with the deceased spouse’s share, and have the Bypass Trust file its own annual tax returns. Also, the surviving spouse is restricted from spending the principal in the Bypass Trust except to cover defined needs.
To be sure, there can be good reasons for a Bypass Trust. For example, one spouse may be concerned that if he or she dies first, the survivor will remarry and leave both spouses’ shares to a new spouse. But if you are among those couples who prefer to take advantage of the more streamlined estate tax law, rather than deal with the bother, expense, and restrictions of a Bypass Trust, you may want to update your Trust to take advantage of the new rules.
This is just a basic overview and is not legal advice specific to your situation. If you would like to speak with Jonathan about your tax or business situation, please email him at jcw@eastbaybusinesslawyer.com or call him at 925-217-3255.
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